Investing in real estate during COVID-19? Here’s everything you need to know

Home values hit record levels in 2021,¹ and in many cases prices skyrocketed by $100,000 or more compared to what they were in late 2019 or early 2020.² It seems that no zip code is immune from the price pop, as city-dwellers rush to find larger pandemic-friendly backyards, and remote work flexibility means that millions of Americans are no longer bound to a certain location or time zone. Pair this buying frenzy with supply chain issues that stymied new home construction, and you’ve got the perfect storm.

But if you’ve been waiting patiently to purchase your dream property – or if you have your eye on an investment property – you may be questioning if there are still affordable properties to be had, and what the market is going to look like heading into 2022 and 2023. Here’s what you need to know if you’re investing in real estate during the COVID-19 landscape.

Prices aren’t likely to come down anytime soon

U.S. home prices have been projected to climb another 13.6% to 16% over the next year.³ This bullish forecast has many people wondering if now is the time to consider a real estate purchase, or if waiting out the home-buying frenzy is the best move.

While that projection may sound extreme, consider that prices were up by nearly 20% from August 2020 to August 2021. For at least the next year, demand is expected to exceed supply, which means those higher prices we’ve grown accustomed to will be sticking around well into 2022.

Keep an eye on supply chain issues

One thing that could help bring home prices down is an increase in supply – meaning an increase in the construction of new homes, which would help meet the country’s ever-rising demand. But global supply chain issues are still at play, and they’ve created widespread material shortages for things like lumber, sheetrock, tile and myriad other construction essentials.

Many contractors have been stalled in their projects due to increasing costs and shipping delays, and countless prospective homeowners have been priced out of homes before they ever had a chance to get into them.

In order for home prices to come down, homebuilding projects will need to get on a smoother (and hopefully cheaper) path to completion. In other words, if you want to know where the housing market is really headed, keep an eye on the supply chain.

Know how much home you can truly afford

To put it another way: don’t buy more than you can comfortably pay for. In general, prospective home buyers looking to invest in a primary residence should spend no more than 30% of their gross monthly income on housing.⁴ This includes your interest, insurance and property taxes.

In this market, it’s all too easy to get into a bidding war for the “perfect” home – it’s a normal human emotion to want to “win” the home that you want most. But with prices still climbing, it’s a dangerous game to play, and you could find yourself over budget before you know it. In states including California, Colorado, Oregon, Washington, Massachusetts and Utah, at least 54% of all homes are selling for more than their list price.⁵ This means that while good deals are still out there, in many cases, prices may be out of reach. Know your spending limits going in – and stick to them.

Prepare for multiple checks

As a prospective homeowner or real estate investor, you already know to prepare for a credit check (or two or three, depending on your pre-approvals process), but increasingly, lenders are going to be checking your employment status with an added layer of scrutiny.⁶

Following the economic uncertainty of the pandemic, many banks began requiring a 20% down payment from borrowers, and in addition to a more sizeable down payment, they also want to see stable employment. They’re looking for a track record of long-term employment, which will serve as evidence that your future income stream isn’t likely to be interrupted if the economy takes another dip.

Think about what you want – and what prospective tenants and future owners want, too

If there’s one thing you need to know about buying real estate amidst a COVID-19 world, it’s that office space is king. The remote work flexibility that millions of workers enjoy today isn’t going anywhere anytime soon, which means that prospective renters and future home buyers are going to want a space where they’re truly able to separate their working life from their personal life. Keep an eye out for properties that boast a dedicated office space (with a door that closes) or multi-use spaces that could serve as a nursery, a large walk-in closet or an office, depending on renovations.

As you search for the perfect property, keep in mind that it’s okay to keep looking until you find the right place at the right price for you. A beautiful new space can be a wonderful investment that can offer you financial security for years to come – and it’s okay if your timeline for that investment evolves over time. The right investment is always better than the quick investment.

There are other options for investing in real estate if you aren’t ready to buy property

If you want to invest in real estate, but don’t want to purchase a physical property, you still have options. You can invest in the real estate sector of the stock market, which is mostly made up of real estate investment trusts (REITs). These companies manage properties across the sector, including residential, commercial and industrial properties. The real estate sector has gained about 44% in 2021, making it the sector with the second-highest gain for the year.⁷